The Core Competence of the Corporation - Prahalad & Hamel

The core competencies model of Hamel and Prahalad is an inside-out corporate strategy model that starts the strategy process by thinking about the core strengths of an organization.

The older, alternative, outside-in approach (such as Porter's five forces model) places the market, the competition, and the customer at the starting point of the strategy process. The core competence model does the opposite by stating that in the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. The real sources of advantage are to be found in management's ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing circumstances. As core competence can be seen any combination of specific, inherent, integrated and applied knowledge, skills and attitudes.

John Cashell 2008 john.cashell@ucd.ie Tel: +353-87-6810354

Here, Prahalad & Hamel dismiss the portfolio perspective as a viable approach to corporate strategy.

In their view, the primacy of the Strategic Business Unit is an anachronism.

Thus, they think the corporation should be build around a core of shared competences. Business units should use and help to further develop the core competence or core competencies. The corporate center must add value by dictating/defining the strategic architecture that guides the competence development process. (it cannot behave as a layer of accounting.)

John Cashell 2008 john.cashell@ucd.ie Tel: +353-87-6810354

Three tests to identifying a core competence are:

It provides potential access to a wide variety of markets, It makes a significant contribution to the perceived customer benefits of the end products, and It is difficult for competitors to imitate.

Core competencies are built through a process of continuous improvement and enhancement.

They should constitute the focus for corporate strategy.

The goal is to build world leadership in the design and development of a particular class of product functionality.
Top management must dictate/define the strategic architecture that guides the competence development process.
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John Cashell 2008 john.cashell@ucd.ie Tel: +353-87-6810354

Top management must dictate/define the strategic architecture that guides the competence development process.

Once top management (with divisional and Strategic Business Unit managers) has identified an overarching core competence:

They must ask the SBU/Businesses to identify the Projects and the People most closely connected with them. They should audit the location, number, and quality of the people embodying the core competence.

Core competence carriers should be brought together frequently to trade notes and ideas.

John Cashell 2008 john.cashell@ucd.ie Tel: +353-87-6810354